Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
BP has adopted many slogans in its 113-year history — “beyond petroleum” comes to mind first. An imperative for new chief executive Murray Auchincloss is to move “beyond polarisation”.
BP has become a “Marmite” stock, in terms of dividing opinion sharply. Nothing but total regime change would have sufficed, for some investors, following Bernard Looney’s abrupt resignation as CEO last September.
For others, appointing an external candidate would have darkened the cloud of uncertainty that has hung over the stock. BP’s shares are 12 per cent lower since he resigned, outpacing declines from rivals Shell and TotalEnergies.
Continuity won out: Auchincloss has worked for BP since 1998 when it merged with his former employer Amoco. As chief financial officer until Looney’s exit, he was involved in drawing up BP’s latest strategy.
That will not make it easy for him to reconcile polarised views among BP’s investors and analysts. But there are ways he can reassure them that familiarity does not mean stagnation.
Auchincloss confirmed on Wednesday that BP’s transition “from international oil company to integrated energy company . . . does not change”.
The overarching principle may not change. But he would do well to spell out how the strategy has evolved since it was drawn up in 2020 — and how it can continue to do so to suit market conditions. Markets responded well last February when BP pared back its commitment to cut oil and gas production by the end of the decade, for instance.
In the end, BP earns almost half of its ebitda from upstream oil production activity. As a result, its approach to the energy transition has shifted. Production of oil and other liquids is forecast to grow 3 per cent a year on average until 2027.
The group must make good on its renewed focus on areas such as biofuels and electric vehicle charging, where it promises returns of more than 15 per cent. These businesses should be profitable in the second half of the decade. Meanwhile, it has pulled out of questionable offshore wind contracts.
Auchincloss will need to redouble the emphasis on returns. Previously, investors had the impression they were being asked to fund energy transition plans “at all costs”, says Alastair Syme at Citi.
He can also win over remaining disgruntled investors with more buybacks. Average annual $14bn of free cash flow is expected by 2025. Bernstein expects Standard & Poor’s to upgrade BP’s credit rating to an A. This could mean improving on BP’s current policy of committing 60 per cent of free cash flow to share buybacks.
The best thing this new (veteran) boss can provide is strategic consistency and proper execution. That should suit the taste of every investor.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore